Which form(s) can help me figure which and how much taxes I will owe? I'm selling my home. I lived in it for 20 yrs, rented it for 6, then lived in it again for 6 now.

[Hal_Al · Accepted solution]

It’s complicated.

If you used TurboTax (TT) download/CD (any version) software (not online TurboTax), the best way to do an estimate is make a copy of your 2019 return and modify it for your 2020 income, including the taxable portion of the home sale.  The TT software is capable of doing this, but it's complicated.

You can try this tool (but, again, your situation is complicated). https://turbotax.intuit.com/tax-tools/calculators/taxcaster/?s=1.
Enter 19% (6/32) of the difference* between the sale price and what you paid for it originally as a long term capital gain (LTCG). Enter the depreciation you've taken over the years (depreciation "recapture") as Misc income. Depending on how much total income you have LTCG are partially taxed at 0%, 15%, 20% and/or 23.8%. Depreciation recapture is taxed at your marginal rate, but not more than 25% (the Taxcaster tool is not capable of applying the 25% cap).

When you do your 2020 tax return, early in 2021, any version of TT download or CD software can handle this. With online software, you need Premiere or Self Employment. But, again, it’s complicated.  You should considered having your 2020 tax return done professionally.

* The gain will be prorated between the residence time and the rental time. Only "non qualified (rental) use" after 2008 is prorated. Deprecation since May 6, 1997 must still be recaptured, even in a  home sale exclusion situation.

[hindman203]

Hi Hal_AI,

Thanks for the reply, comments, and offers of potential solutions!

 For some reason your email reply went to my spam folder for several days before I discovered it, thus the reason for the late reply.  

In the end, I will run the numbers through your suggested routes, so as to see some approximation as to what impact the depreciation recapture will have, but ultimately I will seek out a professional to compare results, before filing, as you suggest.

Again, thanks for your advice!

Best regards.

[Opus 17]

You have a situation called nonqualified use. You may exclude up to $250,000 of the capital gains on your personal residence, but you cannot exclude gain that is subject to the period of nonqualified use. You will also have to pay depreciation recapture for the depreciation that you took or could’ve taken while the house was a rental. This situation is covered in one of the worksheets in publication 523 although it is not clearly spelled out in the instructions unfortunately.

let’s consider some imaginary numbers. I suppose you purchased a home for $100,000, you claimed $10,000 of depreciation for the six years that it was a rental, and you are selling for $300,000.  In that case, your overall capital gains is $210,000.

The first $10,000 of capital gains is taxed as depreciation recapture. That’s taxed at your regular income tax rate with a cap of 25%.  

Out of the remaining $200,000 of capital gains, 6/32 or 19% is due to the period of nonqualified use, and so $38,000 will be taxed as long-term capital gains, usually at a rate of 15%.  The remainder is less than the $250,000 exclusion, so it would be tax-free.  That amounts to around $8500 of tax owed, just doing the math in my head.

turboTax can do the calculation for you, or you can try using the worksheet in publication 523.

[hindman203]

A big thanks also to Opus_17.  The 2 answers should have allowed a tie, as Hal_AI answered the question as to which forms and how to go about figuring it out, along with the comments on the bottom which applied to my case (years which are not included prior to 2009).  But Opus and his specific example really allowed me to take what I had found over the past weeks, and put it to his simplified example.  As I've found over these past weeks, there is not a lot of guidance on this, so I really really appreciate the help provided from you both.  Thank You!